Preparing to Reduce Our Risk

November 17, 2010 09:35 AM

Brian Medeiros125x125 Brian Medeiros

Hanford, Calif.

Medeiros and his parents own and operate a
2,300-cow herd in the San Joaquin Valley.





Risk management has become an important responsibility on our dairy farms. Every day, we are faced with decisions that impose some level of risk. Whether it’s to hire a new employee, change practices in hopes of progressing the flow on the farm, or locking in feed prices for the next six months, it all involves some sort of risk.

As producers, we are expected to manage risk much more intensively than before. Lending institutions are starting to base their decisions about dairy farm loans on how well and to what extent the farmer manages risk. As progressive dairy producers, our businesses require a much more intensive form of management overall. As we strive to farm into the future and focus on maintaining a profitable dairy farm, we need to increase the amount of risk management that we do.

Risk management has not been a leading factor on our farm, but it is something we have practiced for many years. Ever since we moved over to individual commodity purchasing, we have implemented a certain measure of risk management.

A week does not go by that my dad is not on the phone with feed brokers or feed salesmen looking for the best price to purchase a load or lock in a contract. Our feed risk management program is still fairly simple: checking in with salesmen to have a constant feel of how the market is doing and where it is going. In this new world of instant communication, we are also looking to get more information firsthand in order to make informed decisions on market standings and possible market shifts.

With my return home to the farm, my dad and I are planning to increase the intensity of our risk management program. The overall goal is to not only contract feed costs but include a majority of our input costs and contract them at set rates. Dad and I are also looking into forward contracting a price for our milk—at minimum, placing a floor price on a portion of our production.

With some more time invested in learning about the complicated world of forward contracting and hedging on the market, I am confident that we can construct a complete program for our dairy that will encompass all areas of risk management. We know that it is important to have measures in place to reduce risk in today’s market and look forward to the challenges ahead.

I would like to thank everyone for the opportunity to be a part of your homes and offices over the past year to share a little about how we run our dairy farm and the goals we have for the future. It has been a great honor.

October Prices

(3.51% bf, 3.25% prt)

Cull Cows

Springing heifers

Alfalfa hay
(milk cow)



*Extended comments are highlighted in blue.

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